BusinessWhat is prop trader and how does this company work?

What is prop trader and how does this company work?

With the advancement in the trading world you must learn a few terms to stay connected. You must have heard the word prop trader or proprietary trading. Do you ever wonder what is prop trader? Or what is proprietary trading and how does this company work?

If you are wondering about this. Don’t worry. By the end of this article you would know about prop traders and their working.

Prop trader is the company that lets you do prop trading or also know proprietary trading. It means when a financial institute or companies like brokerage firm, investment bank or commercial bank are directly involved in the trading or investing in stock market. They can trade stocks, bonds or even currencies and its derivatives. They use their own funds for investing not like retail traders who invest their own money. They can get investment or commission from trading clients’ money along with the full profit of trading on their own. 

How does a Proprietary Trading Company Work? 

Prop trader is the company that directly engages in the stock market activities. It is done by using resources and accounts of the firm by financial institutes. Hence carrying out self promoting trades. 

These trades are speculative and are done by different types of complex investment vehicles. It’s not only the trader firm that is engaged in trades completely but they get it done through prop traders. Prop traders get into deal with the company as an independent company not like a client or employee. This trade is done through firm accounts. 

To become a prop trader you need to deposit an amount usually known as risk contribution. Risk contribution will determine your leverage rate. But do you know why it’s called a risk contribution? Because if there is any loss in the trade it would be fulfilled with the help of this contribution. This will make sure that you have the company’s best interest and you would not get involved in risky trades because you can lose your own money too.  However the company is in deal with the stock market so it will be responsible for losses in any trade. 

Example of prop trading

Here is an example of prop trading so that you can understand the working in a better way.

If you deposit a small amount, let’s say 5000 USD which provides you access to higher leverages. The more the amount of money, the more will be the leverage rate.

But the point to remember is that you can lose your 100% money during the trade. In the case if you buy a profitable stock on company money and sell it at a high price and you get low commission and profit will be splitted to 85-90%. 

How to become a prop trader?

Now you know how prop trading works and what are the risks you can face. Are you wondering about how to become a prop trader? What can you do to work as a prop trader? Here we are explaining how?

  • Start with researching how prop traders work. 
  • Learn about it as much as you can.
  • Gain skills and knowledge about prop trading, its pros and cons, possible outcomes and risks.
  • Know about how to do a successful trading.
  • You can find it on online platforms or you can join physically at a prop trading firm and get training.
  • Once you have gained enough knowledge, skills, and tools that will help you successfully run a prop trading.
  • Then you can approach a prop trading firm. But do proper research and background checks of the firm before considering it.
  • Once you are satisfied that the firm is trustable you can sign up and deposit a risk contribution.

Topstep traders is one of the companies that do prop trading. Here is a short descriptive Topstep Trader review:

International unique firm which is registered in the USA. Topstep forex brokers have been providing good trading conditions for clients.  

Here are few Trading conditions of Topstep broker:

  • They provide a minimum deposit of 1$.
  • Leverage rate of 1:100 is available.
  • Provide floating spreads.
  • Use currency pairs, stocks, metals and bonds as trading assets.
  • Providing two types of accounts: stimulator account and real funded account.

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